You and your realtor have spent months touring homes looking for that perfect match.
Finally, you find the home of your dreams up for sale.
When you sit down with your realtor to make an offer on the property, your realtor might ask if you want to ask the seller to purchase a home warranty. If you’re not sure what’s they’re talking about- that’s okay!
Even if you have a general idea of what a home warranty is, you might be wondering, “How does a home warranty work?”
While home warranties aren’t a popular topic of conversation, they are an extremely important part of homeownership, especially for first-time homeowners.
Keep reading to learn more about home warranties and how they work.
What is a Home Warranty?
A home warranty is a type of service contract that is similar to having insurance on your home’s appliances and systems.
With a home warranty, you or the seller of the home, depending on the terms of your purchase agreement, will pay an annual premium to the home warranty company. In exchange, the home warranty company promises to repair or replace any appliances or home systems that become damaged during the term of the warranty.
Home warranties are different than homeowners’ insurance. Home warranties offer coverage for repairs and replacements of appliances that stop working.
Homeowners insurance protects your home and most if not all of its contents from uncertain events. These include theft, destruction, fire, and other loss.
Home warranties are also different than the manufacturers’ warranties. If you purchase a brand new home from the builder, the home and its appliances are going to come with manufacturer warranties. These will cover repairs and replacements for a set amount of time.
Most people purchase used homes that come with appliances and systems with unknown ages and histories. If you buy a used home, you might be out of luck if something in the home stops working. This is where a home warranty comes into play.
How Does a Home Warranty Work?
When you purchase a home warranty, you purchase a set of coverages, just like with insurance.
Home warranties usually cover systems including water heating, HVAC, plumbing, electric, and appliances in the kitchen as well as the washer and drier. Some plans offer more coverage for higher premiums for additional systems and appliances.
Home warranty coverages vary by plan and are disclosed at the time of purchase. Home warranties typically have deductibles. When a system or appliance experiences a problem, you file a claim with the home warranty company.
Your home warranty company will have a list of contractors in your area who have agreed to work with them. The warranty company will give you a claim number and an authorization number and the information for the contractor you must use.
Usually, you will set up the appointment on your own. When the contractor comes to your property, you will pay them your deductible directly. As long as you have coverage, your home warranty company will pay the rest of the bill to the contractor directly.
Your deductible is generally less than the cost of a service call. Your home warranty company will give the contractor the go-ahead and repairs will begin.
If the system or appliance needs to be replaced rather than repaired, you will generally receive a set amount towards the replacement cost as determined by your policy.
What Else Do I Need to Know About Home Warranties?
Home warranties are worth the cost, especially if you’re a first-time homeowner or don’t have the savings to deal with major home expenses.
Many first time homeowners end up buying older homes and have little experience with home maintenance and repairs. Home warranties are an easy way to get peace of mind.
Home warranties are very affordable and usually cost between $350 to $500. When you look at the price tag of just one appliance repair, the premium is very reasonable.
It’s important to note that your deductible will apply separately for each claim you file.
Home warranties aren’t all-inclusive. You need to talk to your real estate agent or the home warranty company at the time of purchase to find out what is covered and make sure you are getting the coverage you want and need.
For example, some home warranties don’t cover septic. If there is a specific coverage you need that’s not included in the standard policy, ask about purchasing additional coverage for a slight increase in premium.
Your home warranty policy won’t cover issues found when the home inspection occurs or any damage caused by improper maintenance. If the damaged system or appliance causes structural damage to the home, you may have to file a claim with your homeowner’s insurance for those repairs.
Consider talking to your homeowner’s insurance agent to verify the coverage you have in place for your new home to ensure you aren’t paying for overlapping coverage.
Home Warranties: Peace of Mind
We hope this article gave you an answer to the question, “How does a home warranty work?”
If you’re purchasing a home and are offered a home warranty, there’s no reason to say no. If you are considering renewing your home warranty or buying one for yourself, we recommend going for it.
Home warranties can save you serious money in the long-run, especially if you’re a fixer-upper.
For more articles for homeowners, check out the fiances and money-saving sections of our blog.